A longtime bull in PC stocks, Murphy now believes the big personal computer makers, such as Compaq, Dell and Gateway 2000, are pretty much fully valued. But if demand for PCs surges in the fourth quarter, as nearly every tech analyst on the planet has been predicting, Murphy believes companies like Seagate, Integrated Device Technology and "even Cirrus Logic, which supply parts to the PC industry" are likely to benefit.

He also likes Macromedia and Adobe Systems. Both have been bloodied but they provide the kind of multimedia software that is included in many new PCs. Diamond Multimedia, which makes multimedia products for PCs, is trading at $7 -- down from $18 "and it has new products coming out in the second half of the year," Murphy says.

As for biotech companies, which have had the worst-performing stocks this year: "We look at what companies have invested in R&D in the past five years and compare that with today's market cap. If you can get stocks trading below 8 times what they've spent on R&D, you're getting a good deal." Companies that trade at three times their research and development spending include Xoma, Incyte Pharmaceuticals and Idec Pharmaceuticals. All have products due for approval this year."

How can you know if they'll get approved? "You can't," he says, but he's betting that the odds are good. He expects the Food and Drug Administration will approve as many as 30 new biotech drugs this year, up from 13 last year, six in 1995 and three in 1994.

If the market collapses, all bets are off, which is why Murphy buys put contracts on specific stocks and the Standard & Poor's 500 index "as insurance" against a fall. The cost of the puts "is 3 percent right off the top of your return," he says, "but it lets you sleep at night when stocks are going up."

SHORT POSITIONS

-- Sign of the times: In case you're wondering, with the market lifting to new heights, the answer is -- yes, I'm starting to hear from readers who are wondering how they can cash in their Series EE savings bonds to buy mutual funds. The answer is that once you've held them for six months, you can sell them at many banks without penalty.

-- Snowball effect: Yesterday's column mentioned Benjamin Graham and David Dodd's 1934 analysis of the 1929 crash and how then -- as now -- investors appeared to ignore fundamental analysis in favor of investing in companies that have strong earnings momentum. That prompted reader Bradley Knox to write: "I really don't understand your long-time denigration of the concept of 'momentum investing.' I think you paint with too broad a brush whenever you mention it in the column. In the process, you leave the impression that it is not a valid investment approach."

Oh, it's valid, but all momentum investing isn't created equal. William O'Neil, of Investor's Business Daily, defines it one way and uses one set of rules. Louis Navellier of MPT Review defines it another way, and uses another set of rules. I use the term as a catchall for the fad of buying stocks for no other reason than that they're going higher.

-- Speaking of yesterday's column: Graham & Dodd's market analysis came from their classic, "Security Analysis." "That's a pretty heavy book, written for professional investors," advises reader Ted Kahn. "It might also be worth mentioning that for the rest of us Graham wrote 'The Intelligent Investor,' which gives us Graham's philosophy with enough practical information (and yes, even a little math) to make real investment decisions." Duly noted, Ted.

-- Internet insanity: Back in January I quoted someone identified only as "one of my more cynical industry watchers" as saying the time to buy Internet stocks "will be when there's no longer such a thing as an Internet analyst on Wall Street." Earlier this week that appeared to be occurring faster than anybody expected when pioneering Internet analyst Bill Gurley quit his post at DMG Technology in Menlo Park to join Hummer Winblad Venture Partners in San Francisco. However, his post isn't being eliminated; he'll be replaced by Lise Buyer, T. Rowe Price's talented, tell-it-like-it-is software analyst.